21 April 2008

Angry Bear On Taxes

I've previously discussed similar reforms, although I suggested a dramatic limitation of the charitable deduction, rather than its elimination. In the pertinent parts:

Revenue Raisers

1. End all favorable tax rates for capital gains (other than gain on the sale of a principal residence). Rates might be capped at the greater of the individual's top ordinary income tax rate in the year or the highest rate that would apply to the gain divided by the number of years in the holding period for the asset, whichever was greater, to address the concern that an individual might be bumped into an artifically high tax bracket.

2. End the 1031 like-kind exchange (a capital gains tax deferral device), at least for real estate, which would be deemed never to be of like kind with any other real estate.

3. Tax accrued capital gains upon gifts and inheritances, based on a deemed transfer at fair market value, to the donor. Currently gifts are not taxed and receive a carryover basis, while inheritances are not taxed and receive a step up in basis to fair market value. (Similar treatment currently exists for 401(k)s and IRAs).

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5. Eliminate favorable tax rates on dividends received, and the dividends received deduction of existing tax law, as well as the accumulated income tax and the personal holding company tax. These would be replaced by a simple dividend paid deduction for corporations.

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9. Tax all income on stock received in exchange for either services, or for stock options granted in exchange for services, as ordinary income subject to self-employment taxation.

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11. Narrow the scope of the Section 170 charitable income tax deduction to contributions that truly benefit the needy, as opposed to contributions to all 501(c)(3) organizations. For example, charitable deductions for educational contributions would generally be limited to scholarships, and charitable deductions for churches would be limited to funds specifically ear marked for ministries to the needy. Among the donations that would no longer qualify would be contributions to the general funds of universities and museums. These deductions would still apply for gift and estate tax purposes under the theory that those taxes are taxes in lieu of an income tax on the receipient.

12. Tax the net investment income of non-profits at corporate rates.

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17. End the pastor's housing allowance.

18. Tax business food, clothing, entertainment and lodging expenses as not taxable to the customer or employee, but not deductible by the provider.

19. Disallow vehicle expenses except for the percentage of use documented as business travel.

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Tax Cuts:

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8. Create a charitable deduction for direct payments to non-family members/non-employees in need in the form of qualified vouchers.